June 3, 2009
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News: AmEx Speaks Out on CC Bill
American Express Chief Executive Officer, Kenneth Chenault spoke out on the credit card act signed into law in April by President Obama and its effect on the company. Mr. Chenault who spoke at a Keefe, Bruyette, & Woods conference, stated that they expect to "suffer less pain" than other credit card companies. Lenders like Chase, Citigroup and Bank of America acquire the bulk of their earnings from the card's debt interest; unlike the American Express which only receives approximately 20% of their revenue from interest. The new legislation is designed to inhibit credit card companies' ability to arbitrarily raise interest rates and levy stiff over-the-limit and late payment penalties. Although American Express is expected to fare better than other companies, Chenault indicated that the bill will have negative effects for the company. To offset the negative effects, the company will be increasing its card promotions with greater zeal.
American Express is unique in the credit card market in that consumers must pay their card balances off in full each month. The company has less than 20% of the market but has been growing rapidly recently as it opened up its customer base to include the average consumer. The company was hit hard by the recession as credit card delinquency rates nearly doubled. Some speculate the move to widen American Express's customer base was the primary reason for the huge increase in defaults. The company's default rate rose to 10.1% in April up from 8.80% in March. On a positive note, American Express's loan delinquency rate of 30 days or more fell in April to 4.9% from 5.1% in March. Chenault said that although the economy has recently seen modest signs of an upward trend, the company expects to continue to see defaults rise throughout the year.
Consumers have been hit hard by the recession and record breaking unemployment rates in 2008 and 2009. Many have learned to curb spending and depend less on their credit cards. Chenault predicted that the financial industry will not experience the same profits as it once did. He also stated that the industry will be more competitive going forward. Tougher competition means good news for consumers as card companies will need to be more aware of meeting their customers' needs